Tuesday, July 05, 2011

Bastiat's One-Hand Solution to Job Losses

According to David Brooks writing in today's NY Times, it's a "problem" that "Manufacturing employment is cratering even as output rises."

Don Boudreaux speculates that David Brooks probably "uses computers, word-processing software, ink-jet printers, e-mail, and other modern techniques that increase his productivity (and, thus, that cause the amount of time that he and others spend producing punditicities to crater even as their output rises)." In that case, Don wonders why Brooks "bemoan[s] increasing worker productivity in the manufacturing sector?"

Q: Would Brooks also consider it to be a "problem" that "agriculture employment has been cratering for 200 years even as farm output rises to record high levels" as a direct result of significant increases in farm worker productivity?

David Brooks is sounding a lot like President Obama, who recently linked productivity and efficiency gains to job losses, as Russ Roberts pointed out recently in his WSJ op-ed "Obama vs. ATMs: Why Technology Doesn't Destroy Jobs."

If Obama and Brooks really want to "maximize jobs" in manufacturing, banking, farming, or any other industry, they should consider an effective job-creation program from more than 150 years ago advanced by French economist Frederic Bastiat. In 1845, as a solution to counteract job losses in some French domestic industries like textiles due to free trade, Bastiat proposed to the King of France that he "forbid all loyal subjects to use their right hands."

Bastiat predicted that "as soon as all right hands are either cut off or tied down, things will change. Twenty times, thirty times as many embroiderers, pressers and ironers, seamstresses, dressmakers and shirtmakers, will not suffice to meet the national demand."

"Yes, we may picture a touching scene of prosperity in the dressmaking business. Such bustling about! Such activity! Such animation! Each dress will busy a hundred fingers instead of ten. No young woman will any longer be idle. Not only will more young women be employed, but each of them will earn more, for all of them together will be unable to satisfy the demand."

Bottom Line: If manufacturing job losses are a "problem" due to technology and productivity gains, an effective "solution" would be to forbid all American workers from using their right hands. By adopting Bastiat's proposal, we could immediately stop the "cratering" of manufacturing employment that David Brooks and Barack Obama lament, and dramatically increase the number of new, one-handed manufacturing workers by millions.

Don Boudreaux has put on the blinders so that he does not have to see manufacturing employment decline caused by outsourced jobs. When it come to free trade costing American jobs he is strictly a hear no downside to free trade, see no downside to free trade, and speak no downside to free trade guy.

It is all caused by productivity improvement. Never mind that productivity improvement has been going on at least since Washington bought gun power for the Continental Army and it has never before caused such job loss as we see today.

The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren't there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman's response: "Then why not use spoons instead of shovels?"

That story came to mind last week when President Obama linked technology to job losses. "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers," he said. "You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate." (there's a bit more)

James: "productivity improvement has been going on at least since Washington bought gun power for the Continental Army and it has never before caused such job loss as we see today."

Productivity improvements have been eliminating jobs all over the globe since the Industrial Revolution began. And yet the number of jobs in the U.S. has continued to grow. The four highest years for U.S. employment were the years 2005 through 2008.

The high levels of unemployment since 2008 were not caused by productivity improvements.

Rufus: "Increased productivity is a good thing, but having vast numbers of downtrodden unemployables is a very bad thing."

Where exactly are these "downtrodden unemployables"? Why do you believe a laid off worker is "unemployable"?

The U.S. has endured high levels of unemployment many times before and always bounced back. Not one of those periods of high unemployment levels was caused by increased productivity. Left alone and free from stifling regulation, U.S. entrepreneurs and corporations always create more jobs. Always.

Not only will it increase employment, but also begin to correct the discrimination and injustices suffered by left-handed people.

James -

1. you presume that productivity has been a constant since GW. Really? You're sticking with that? The productivity gains between say, 1830 and 1840 had the same impact as those between 1980 and 1990?

2. Outsourcing has also been going on for a long time

3. Jet Beagle addressed this also: I've been hearing the outsourcing p'ing and moaning since I've been paying attention, going on 50 years now. You'd think that our unemployment rate would be about 40% by now. But it's not. What you are saying has been said for at least decades, and all indications are that it was wrong for decades.

Bastiat was no nobleman. You should read his biography. He did have wealth that increased the number of jobs both in France and outside France. More productivity is better than the alternative. If you have a better alternative, please let us know.

"The high levels of unemployment since 2008 were not caused by productivity improvements"...

Gee jet I do know of a few but whether the few I know about is part of a significant portion of those who've been laid off I don't know...

In the airline industry it seems that software is taking the place of a lot of what once was human resources services...

This has been happening in the airline I work for over the last two or three years...

Software has for several many years now taken over the positions (though not all of them) of the people who used to do the 'weight & balance' calculations for the flights...

Much of the supposedly necessary red tape involved in air freighting 'restricted articles' is now automatically generated by computers and this put quite a few folks on the streets from both air carriers and the freight forwarders...

Software has taken the places of airline agents, the passenger operated kiosk (ticket purchasing, seat assignments, etc) is a prime example...

Having said all that is that enough people to make an impact on the unemployment numbers?

The Northrop Grumman B-2 Spirit (also known as the Stealth Bomber) is an American heavy bomber with low observable stealth technology designed to penetrate dense anti-aircraft defenses and deploy both conventional and nuclear weapons. Because of its considerable capital and operational costs, the project was controversial in the U.S. Congress and among the Joint Chiefs of Staff. During the late 1980s and early 1990s, the Congress slashed initial plans to purchase 132 bombers to 21.

Manufactured by Northrop Grumman, the cost of each aircraft averaged US$737 million in 1997 dollars ($1.01 billion today).[3][4] Total procurement costs averaged US$929 million per aircraft ($1.27 billion today[4]), which includes spare parts, equipment, retrofitting, and software support.[3] The total program cost, which includes development, engineering and testing, averaged US$2.1 billion per aircraft (in 1997 dollars, $2.87 billion today).[3][4]

Hmmm. $2.87 billion per plane, for the B2. By topday, a $3 billion plane. That's each.

Hey, but we have used them against fearsome enemies in...Kosovo, Afghanistan and Iraq.

Yep, we caught those ragheads in Afghanie completely off-guard with this plane. There they were, in their tents, and they never knew what hit 'em!

Paul-

Is this something the private-sector would have done? Built a $2.87 billion plane, when we had no enemies to use it against?

And then used it anyway, against people armed with cell phones and homemade bombs?

The same thing was happening in the 20's. The Wall St. crowd were busy lighting their cigars with $100.00 bills, and didn't notice that unemployment was surging in the heartland as a result of mechanization in agriculture.

Mechanization, computerization, robotization are wonderful things, but we Do need to concentrate on getting those unemployed retrained (as best we can,) and back in Real jobs.

No question that automation has increased productivity in our industry - the air transport industry - for the full 27 years I've worked in it. I've seen the elimination of one-third of the cockpit crews and the consolidation of reservation centers, among numerous other changes.

At the same time, the number of employed workers in all U.S. industries continued rising throughout that period, peaking in 2007 and 2008.

If air transport automation did not cause high unemployment levels from 1984 to 2008, is there any reason to believe it caused high unemployment levels in 2009 and 2010? I can't think of any.

I think the most of the changes you listed were implemented well before the current economic downturn. And those changes are only a continuation of a decades-long trend of increasing productivity in our industry.

"The 12-pound, 29-inch system, which was designed by Minnesota's Alliant Techsystems, costs up to $35,000 per unit and, while highly sophisticated, is easy enough to use that soldiers become proficient within minutes, reports Fox News."

juandos: "I've been airlining since '76 and I would guess that something like 30+% of the positions that used to be filled by people no longer are..."

Here's how I see it:

200,000 airline were eliminated between 2000 and 2008. But our industry in 2008 still employed almost twice as many workers as it did in 1983 (553,186 vs 322,570) (see www.bls.gov for data)

As measured by revenue passenger mile per employee, our industry is far more productive than in 1983. That's allowed carriers to reduce airfares to all-time lows in real, inflation-adjusted dollars. Lower airfares resulted in more passengers - and more jobs.

The past two years have been brutal, no question. IMO, though, we cannot blame that job loss on automation. After all, the industry added 230,000 jobs between 1983 and 2008 when automation was just as much as factor.

What is consuming the wealth of our nation and destroying jobs is big government, now consuming 61% of GDP. The solution must include cutting spending, taxes, borrowing, and regulations. We have at least twice as much government as we need.

"200,000 airline were eliminated between 2000 and 2008. But our industry in 2008 still employed almost twice as many workers as it did in 1983 (553,186 vs 322,570) (see www.bls.gov for data)"...

Hmmm, it seems we have 'definitions' problem here Jet...

There are people working at the airlines that are NOT actually airline employees but 3rd party contract employees...

From 24/7 Wall St: The 10 American Industries That May Never Recover: Airlines. The number of pilots, flight attendants and ground crew workers is shrinking as consolidation and the recession have hurt the industry badly. Mergers in the last two years, between Delta and Northwest and United's merger with Continental, have decreased the number of large carriers in the U.S. by half. The Bureau of Transportation Statistics reported that the number of airline employees in the U.S. has fallen by 25% since 2001. And the latest merger firings have not yet been announced. Jobs for pilots and flight engineers fell by 30.4% in the third quarter of 2009 to 96,000 from 138,000 jobs in 2008, according to the BLS

Bottom Line: If manufacturing job losses are a "problem" due to technology and productivity gains, an effective "solution" would be to forbid all American workers from using their right hands. By adopting Bastiat's proposal, we could immediately stop the "cratering" of manufacturing employment that David Brooks and Barack Obama lament, and dramatically increase the number of new, one-handed manufacturing workers by millions.

My problem is not with job losses due to productivity gain. My problem is job losses due to regulations that force honest businesses to move their operations abroad. Whether you want to admit it or not the US is full of goons who try to hound honest businesses with petty fines each time a washroom counter is found to be an inch too high or a kick plate is found to be a quarter inch too low.

Us manufacturing jobs are not threatened by huge increases in productivity but by regulations that make it much more difficult to be competitive in a global marketplace.

I don’t know that I agree with Douglas McIntyre at 24/7 Wall St, either.

Total revenue passenger miles for all U.S. carriers:

1Q2000 - 156 billion

1Q2011 - 184 billion

Ours is still a growing industry, juandos. It is true that productivity gains the past decade have eliminated 200,000 airline jobs. That's because the legacy carriers were incredibly bloated at the beginning of this century.

When we look at the longer term, we see that airlines have added 200,000 jobs since 1983. So the total productivity improvements since 1983 have not caused a net reduction in airline jobs.

There is no doubt that management at some legacy carriers have been incredibly stupid. They just didn't manage their companies, and allowed workforces to grow all out of proportion to revenues. As I see it, it was not productivity gains but arrogance which killed the jobs.

Ron H: "Am I reading this correctly? US airlines only, one quarter only?"

Yep. Please notice that these are revenue passenger miles, not passengers. And the numbers include international as well as domestic flights on U.S. carriers. Here's revenue passenger enplanements for the same two periods:

1Q2000 - 153,782,000, or 1.7 million/day

1Q2011 - 167,344,000, or 1.8million/day

Enplanement: a single, revenue-generating passenger departing from an airport. A passenger flying through a hub city, say STL-ATL-MIA, would count as two enplanements.

Ron H: "If the goal of terrorism is to disrupt, Richard Reid has been successful beyond his wildest dream."

I realize this was not a serious comment. But it might be worthwhile to consider what was the real goal of Richard Reid's Al Qaeda handlers.

Al Qaeda's focus for the past two decades has been to end the U.S. military presence in Muslim nations. Consider how the U.S. military troop and armament count in Muslim nations has grown after 9/11 and after the shoe bomber. As I see it, Al Qaeda - the handlers of both Mohammed Atta and Richard Reid - has thus far failed miserably in its attempt to achieve its primary goal.

"I realize this was not a serious comment. But it might be worthwhile to consider what was the real goal of Richard Reid's Al Qaeda handlers."

While intended to be humorous, my comment was half serious. Both the shoe bomber & the underware bomber were on flights originating outside the US, and as far as I know, every other known threat to a commercial aircraft also originated outside the US, where we have little control of security.

You may have superior knowledge due to your connection with the industry, and I wouldn't mind being corrected, but I'm unaware of any threats originating inside the US, but all of our efforts are aimed at such flights.

Every US passenger is now considered a potential terrorist, and must remove their shoes, and possibly undergo intrusive scans or sexual assault by TSA employees. The cost is astronomical. Just to remove and replace shoes at 1 minute per passenger costs 500 hrs/day, every day.

"Al Qaeda's focus for the past two decades has been to end the U.S. military presence in Muslim nations."

That is correct, as is your observation that they have been unsuccessful in ending that presence.

The goal of terrorism is to discourage and demoralize an enemy that there is no hope of defeating militarily, so that enemy will decide the cost of continued actions against you is too high.

The fear in the US of terrorist acts is way out of proportion to the actual risk to any of us from those potential acts, and in my opinion, the drastic measures taken in the name of preventing terrorist attacks are not only far too sweeping in scope, but of questionable effectiveness.

Al Qaeda's focus for the past two decades has been to end the U.S. military presence in Muslim nations. Consider how the U.S. military troop and armament count in Muslim nations has grown after 9/11 and after the shoe bomber. As I see it, Al Qaeda - the handlers of both Mohammed Atta and Richard Reid - has thus far failed miserably in its attempt to achieve its primary goal.

What is so great about going bankrupt by funding occupations of Muslim nations? Why is it considered a victory by supporting tyrants and occupying nations where people hate your government's actions?